China has included the internet industry for the first time in an envisioned overhaul of its anti-monopoly laws, potentially giving regulators the power to rein in the country’s increasingly dominant technology giants.
Proposed revisions to the Anti-Monopoly Law, published last week, included language that accords regulators responsibility to monitor the impact that internet companies have on the online sector, their scale and their ability to control products and services. More broadly, companies found to have violated the law could be fined as much as 10% of their revenue or a maximum of 50 million yuan ($7.2 million) if they don’t generate significant sales, according to the revised rules posted on the State Administration for Market Regulation’s website. The draft is currently open to public consultation.
The proposal follows heightened scrutiny of technology companies worldwide, as regulators investigate the extent to which internet giants from Facebook Inc. to Google can use valuable data to shore up their dominance. China itself is home to some of the world’s largest corporations, from e-commerce giant Alibaba Group Holding Ltd. and WeChat-operator Tencent Holdings Ltd. to up-and-comers such as ByteDance Inc.
A handful of domestic players control swaths of online businesses from retail to social media, and their backing is often key to the success of newly emergent startups. It’s unclear what other punishments Beijing’s regulators could mete out, but the industry’s leaders have drawn criticism for years for over-aggressive competitive tactics.
“Online platforms and consumers don’t have equal bargaining powers, and platforms will tend to abuse their dominant positions in the market,” said Zhan Hao, managing partner with Beijing-based Anjie Law Firm. “Over the past years, China has encouraged innovation and development in the internet sector, going through a phase where regulators are more tolerant. There will be closer scrutiny going forward.”
Read more: Facebook and Google Face ‘Supercharged’ Regulatory Risk in 2020
China’s authorities took two decades to draft the anti-monopoly law before enacting it in 2008. Foreign governments and businesses have long urged China to enact clear laws and procedures for enforcing them. But critics say the antitrust crackdown is being enforced unevenly, and that the business environment for overseas companies is worsening as a result. U.S. President Donald Trump is now waging a campaign to get Beijing to open more sectors to foreign participation.
The latest revisions appear to be targeted at domestic operators, Susan Ning, antitrust partner at King & Wood, wrote in a report published on the law firm’s social media account. “This definitely casts a spotlight on the internet sector and how it does business,” Ning wrote. “As we understand it, singling out the internet sector signals a new-found focus on the industry’s unique characteristics and is intended to ensure room for its expansion. Also, it signals a renewed focus on the internet, and on internet platforms in particular.”
China Steps Up Antitrust; Foreigners Feel Stepped On: QuickTake
JD.com Inc., for instance, has accused bigger rival Alibaba of unfairly locking in exclusive agreements with merchants, which Alibaba has denied. Regulators have investigated the legality of ride-hailing leader Didi Chuxing’s acquisition of Uber Technologies Inc.’s Chinese business. And Tencent’s WeChat dominates many aspects of daily Chinese life from payments to gaming, though upstart ByteDance has in recent years begun to eat into its advertising business through video service Douyin and news platform Toutiao.
The proposed revisions are an attempt to update laws for the internet era, to adapt to an industry where market dominance isn’t always easily quantifiable. In the past, China used revenue or market share as metrics to determine whether a company held a monopoly. But those precepts may not apply to internet companies, which sometimes control valuable information yet don’t generate a lot of cash because they haven’t monetized that data.
“The government has for a long time wanted to regulate the internet sector. It’s part of a growing trend internationally as well,” said Ma Chen, a Beijing-based partner at Han Kun Law Offices who specializes in antitrust. “The new economy companies are having a great impact so the government wants to make sure anti-monopoly laws are keeping up with the times.”
— With assistance by Dong Cao, and Lulu Yilun Chen
Source: Βloomberg
